U.S. crude oil exports have received a lot of hype over the past year or so. Ever since President Obama signed legislation in December 2015 to allow a liberalization of exports, volumes leaving U.S. shores have received extra attention to see how they’d shake up global oil markets. But for all the excitement, the amount U.S. crude producers exported increased by only a modest amount in 2016 versus the previous year. What gets overlooked sometimes is that the U.S. is still importing some 7-9 million barrels per day (mbd) of crude. With that in mind, it’s unlikely that exports will remain significantly high for an extended period of time.

For all the excitement, the amount U.S. crude producers exported increased by only a modest amount in 2016 versus the previous year.

There has, though, been a surge of exports recently with volumes reaching 1 mbd for the week ending February 10, based on preliminary EIA estimates. This jump might be just a blip as no clear trends have yet emerged with crude exports. In 2016, the U.S. exported some 530,000 barrels per day (b/d), up only 65,000 b/d from 2015, with a majority still heading to Canada, a large buyer even before the ban was lifted. Beyond Canada, exports have gone to a varied group of buyers, in Latin America, Europe, and even Asia, fluctuating sharply month to month.

Reuters reported that traders have been sending heavy crude from the U.S. to Asia, particularly small refiners in China as OPEC has dialed back there. Some 2 million barrels of U.S. heavy crude will arrive in China in April, which comes on the heels of 600,000 barrels in January. For November, the last month for which the EIA has final data, the U.S. shipped some 76,000 barrels per day (b/d) to China, second to Canada. Volumes to China have risen as a result of market gaps from the OPEC cut, traders told Reuters, as most producers in the cartel—except for Nigeria and Angola—produce medium to heavy crudes. The higher price for Middle East heavy crudes to Asia has made it economic to ship there from the U.S.

Traders have been sending heavy crude from the U.S. to Asia, particularly small refiners in China as OPEC has dialed back there.

It’s ironic that U.S. exports of heavy crude have risen considerably given that the economic and logistical justifications of lifting the ban stemmed from a glut of light crude that resulted from the sharp rise in shale oil. For the most part, before the tankers of heavy volume headed to China, it was mostly light crude shipped to foreign customers. While growth in exports has been modest, it has stabilized crude price differentials. In the U.S., spreads between light, sweet and heavy, sour crudes have returned to normal of around $3-$4, after reaching parity because of the overhang of higher-quality light, sweet grades. At the same time, the differential between U.S. West Texas Intermediate (WTI) and European marker Brent has steadied around $3.

Curb your enthusiasm

Even with the recent surge, it’s important to keep enthusiasm over exports in check. While the end of the ban was certainly a long-term victory for free market principles and the oil industry, export deals so far have been mostly “opportunistic” because of logistical gaps. Market participants in the U.S. will continue to look for these openings overseas when economics are favorable. But the U.S. is still far away from materially impacting the global oil market through exports in a significant way. Refiners rely on foreign supplies for roughly 45 percent of their needs.

“The important thing to remember about exports is that every time we export a barrel, because we have more demand than we have supply, we have to import a barrel to replace it. That’s the way it’s always going to work.”

As Rusty Braziel of RBN Energy said last week at the Center for Strategic and International Studies: “The important thing to remember about exports is that every time we export a barrel, because we have more demand than we have supply, we have to import a barrel to replace it. That’s the way it’s always going to work.”

Perhaps the biggest impact of exports has been on U.S. refiners because of the changes in price spreads. Moreover, since the shale boom took off, refiners have tweaked their plants to take in more tight oil. To the extent that they continue to do this, domestically produced light crude will be mostly run by U.S. refiners rather than shipped to customers overseas. For the heavier grades, how much the U.S. exports depends on OPEC, which may end up cheating on production targets to keep market share.

A recent Bloomberg article noted how the U.S. could soon be exporting more than what four OPEC countries produce. That may sound like a larger deal than it is. The U.S. is still a major market for OPEC, with the cartel selling more than 3 mbd to American refiners, and the country’s export volumes pale in comparison to heavyweight producers in the group, such as Saudi Arabia, Iraq, Iran, and Kuwait. OPEC was able to increase its market share in the U.S., up to 40 percent of total imports versus 33 percent early last year, as shale got hit from the extended period of low prices.

Obviously, it’s good news that U.S. producers are able to muscle into new markets to sell their crude, but it’s important to keep the broader picture in perspective: The U.S. is still highly reliant on foreign imports.

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The Fuse is an energy news and analysis site supported by Securing America’s Future Energy. The views expressed here are those of individual contributors and do not necessarily represent the views of the organization.

Issues in Focus

Safety Standards for Crude-By-Rail Shipments

A series of accidents in North America in recent years have raised concerns regarding rail shipments of crude oil. Fatal accidents in Lynchburg, Virginia, Lac-Megantic, Quebec, Fayette County, West Virginia, and (most recently) Culbertson, Montana have prompted public outcry and regulatory scrutiny.

2014 saw an all-time record of 144 oil train incidents in the U.S.—up from just one in 2009—causing a total of more than $7 million in damage.

The spate of crude-by-rail accidents has emerged from the confluence of three factors. First is the massive increase in oil movements by rail, which has increased more than three-fold since 2010. Second is the inadequate safety features of DOT-111 cars, particularly those constructed prior to 2011, which account for roughly 70 percent of tank cars on U.S. railroads. Third is the high volatility of oil produced from the Bakken and other shale formations, which makes this crude more prone towards combustion.

Of these three, rail car safety standards is the factor over which regulators can exert the most control. After months of regulatory review, on May 1, 2015, the White House and the Department of Transportation unveiled the new safety standards. The announcement also coincided with new tank car standards in Canada—a critical move, since many crude by rail shipments cross the U.S.-Canadian border. In the words DOT, the new rule:

Since the rule was announced, Republicans in Congress sought to roll back the provision calling for an advanced breaking system, following concerns from the rail industry that such an upgrade would be unnecessary and could cost billions of dollars. The advanced braking systems are required to be in place by 2021.

Democrats in Congress have argued that the new rules are insufficient to mitigate the danger. Senator Maria Cantwell (D-WA) and Senator Tammy Baldwin (D-WI) both issued statements arguing that the rules were insufficient and the timelines for safety improvements were too long.

The current industry standard car, the CPC-1232, came into usage in October 2011. These cars have half inch thick shells (marginally thicker than the DOT-111 7/16 inch shells) and advanced valves that are more resilient in the event of an accident. However, these newer cars were involved in the derailments and explosions in Virginia and West Virginia within the past year, raising questions about the validity of replacing only the DOT-111s manufactured before 2011.

Before the rule was finalized, early reports indicated that the rule submitted to the White House by the Department of Transportation has proposed a two-stage phase-out of the current fleet of railcars, focusing first on the pre-2011 cars, then the current standard CPC-1232 cars. In the final rule, DOT mandated a more aggressive timeline for retrofitting the CPC-1232 cars, imposing a deadline of April 1, 2020 for non-jacketed cars.

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DataSpotlight

The recent oil production boom in the United States, while astounding, has created a misleading narrative that the United States is no longer dependent on oil imports. Reports of surging domestic production, calls for relaxation of the crude oil export ban, labels of “Saudi America,” and the recent collapse in oil prices have created a perception that the United States has more oil than it knows what to do with.

This view is misguided. While some forecasts project that the United States could become a self-sufficient oil producer within the next decade, this remains a distant prospect. According to the April 2015 Short Term Energy Outlook, total U.S. crude oil production averaged an estimated 9.3 million barrels per day in March, while total oil demand in the country is over 19 million barrels per day.

This graphic helps illustrate the regional variations in crude oil supply and demand. North America, Europe, and Asia all run significant production deficits, with the Middle East, Africa, Latin America, and Former Soviet Union are global engines of crude oil supply.